Frequently Asked Questions about Foreclosure


What is the Foreclosure Process?

Foreclosure is the process of a mortgage or lien holder exercising their legal right to reclaim the property if you default on the mortgage loan.   The foreclosure process typically starts after you fall two or more months behind on your mortgage payments. The lender will send you a Notice of Default which tells you how much you must pay the lender in order to prevent a foreclosure sale, or reinstate the mortgage.  After this there is a reinstatement period in the foreclosure process before the house is put up for auction. During this time, if you pay the amount required under the default, then the mortgage is reinstated and the foreclosure sale will not be held.  If the defaulted loan is not taken care of in this time period, a notice of sale is sent to the owner, posted on the property and in the newspaper and the home is scheduled for a sheriff’s sale or auction.

How Bankruptcy Can Stop Foreclosure

If you are behind on your mortgage payments and your lender won’t work with you to get caught up, Bankruptcy may help you save your home or allow you to simply walk away from the debt.  If you qualify, Chapter 13 allows you pay off your mortgage arrearages over a period of 3 to 5 years.  The court can stop the foreclosure sale and force the mortgage company to allow you to get caught up on your arrearages.   However, your bankruptcy case MUST be filed before the sheriff’s or foreclosure sale.  So if you are facing an impending foreclosure sale, contact one of the attorneys at Sterling Bankruptcy Center today to discuss your options.

Can The Automatic Stay Delay or Stop Foreclosure

Once you file bankruptcy an automatic stay prevents creditors from taking any action to collect a debt you owe, including selling your home, without court approval. The automatic stay requires your creditors to stop ALL collection activities immediately, no excuses. If your home is scheduled for a foreclosure sale, the automatic stay legally stops the sale, unless the creditor gets the court’s permission to lift the stay and allow the sale to proceed. This happens when the creditor files a motion to lift the stay with the court.  There is a waiting period before an order can be entered allowing the stay to be lifted.  

How Does Chapter 13 Work?

Chapter 13 bankruptcy lets you pay off your mortgage arrearages (late fees, penalties, and unpaid payments) over the length of a repayment plan you propose through bankruptcy. But you'll need enough income to pay at least your reasonable and necessary living expenses, your current mortgage payment and your mortgage arrearages.  Assuming you make all the required payments up to the end of the repayment plan, you'll avoid foreclosure and keep your home and are discharged from the remaining debt.

What About My 2nd and 3rd Mortgages?

In today’s housing market, you may find that your house is worth less than you actually owe.  Chapter 13 may also help you eliminate your second or third mortgage. That's because, if your first mortgage is secured by the entire value of your home, particularly if your home has dropped in value, there may not be any equity left to secure the later mortgages.  In these cases, the court is permitted to "strip off" the second and third mortgages and recategorize them as unsecured debt. (Contact an attorney today)

Do I have To Repay Credit Card and Other Unsecured Debt in a Chapter 13:  

Not always. 
In a Chapter 13, unsecured debts take last priority and may get paid off at a reduced rate or not get paid at all.  If you do pay some or all of these unsecured debts, you do not pay any interest on them.

What Happens If I Don't Qualify for Chapter 13? 

If you do not qualify for a Chapter 13 repayment plan to save your home, you may still benefit by filing a Chapter 7 bankruptcy case.  In Chapter 7, the mortgage is discharged and you are not required to repay the debt.  You can simply walk away.  In many cases you can live there rent free during the redemption period, which in Michigan is 6 months. You may also try and negotiate with the lender to modify the loan to more favorable terms.    

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